Matt Kiraly, Global Head of Origination Sales, Prime Finance, and Murat Demir, Head of Emerging Markets Americas, Equity Finance, talk to Global Investor about emerging market trends in Latin America and beyond. They outline how HSBC is structured to support institutional investors in accessing and navigating the distinct subtleties of emerging markets.
Emerging markets have always been integral to HSBC. Indeed, the bank has been present in one of the world's most prominent emerging markets – China – for more than 150 years. The Hongkong and Shanghai Banking Corporation, the founding member of today's global banking group, opened an office in Shanghai in April 1865, just one month after it was first established in Hong Kong.
As its deep-rooted experience in China and across Asia attests, the bank is accustomed to adapting its approach in order to help clients navigate the complexities unique to each developing market. This includes a strong focus on leveraging local expertise to support market access, as well as to deliver timely insights.
Connecting clients to developing, high growth markets is a core focus for HSBC not only in Asia, but also across Latin America. The global bank can trace its standing in the Argentine market, for example, back to 1998 and is today one of the country's largest private banking and financial services organisations in the country. The bank is also present in other LATAM countries such as Mexico, Chile, Peru, Colombia, and Uruguay. Furthermore, HSBC is also poised to return to the Brazilian market. After the end of non-compete agreement with Banco Bradesco, HSBC has been able to freely operate again in the Brazilian market starting 2nd January 2019. The Bank currently serves hundreds of local and multinational clients and is working on expanding its operations in the country, with the aim of becoming a bank of choice for large and medium-sized multinationals.
LATAM an important player in the EM growth story
The last few years have seen growth in both cash and listed derivative volumes, adds Demir, who points to the increase in open interest on not only global emerging market futures but also Latin American ones as well as a key indicator of this trend. As an example, MSCI LATAM Future open interest doubled, MSCI Brazil tripled since December 2016 to reach out USD1.7 billion and USD1.85 billion respectively.
As volumes have increased, Demir explains that the cost of exposure has become more favourable and ease of access has improved. "Typically with any Emerging Market, as you see the market become more accessible you will see demand increase and a broader range of investors look to enter the market." Brazilian cash market is a good illustration as volume doubled to 4 billion daily in the cash market since 2016.
At the same time, the addition of some key markets to the MSCI Emerging Markets Index is helping to drive interest while also spurring efforts for greater market transparency, access, and development. "Saudi and China are definitely two of most significant themes that we been speaking with our clients on over the course of 2018/2019," affirms Kiraly. "However, Argentina is definitely another market where we are seeing demand as it moves from Frontier to EM". Despite MSCI Argentina index being only ADRs currently, HSBC expect volume in the domestic market to surge as well and is putting the final touches to his swap offering which should be ready toward end of June 2019.
While strengthened market infrastructures and market maturation could help drive deal flow and IPO activity, and in turn further capture investor interest, Demir points out that the increased weighting of emerging markets on the MSCI ACWI Index may also bring certain challenges. He says: "As the weight of EM countries will increase within MSCI ACWI, the amount of emerging markets assets to be held to providing derivatives will naturally increase. If some of the large EM countries do not put in place re-hypothecation process as we have in Developing countries, this could ultimately reverse the cheapening trend we have witness lately on the derivatives products – EM asset have always been challenging to fund this could make it quite challenging for some banks when dealing with those funding issues in the future on a bigger scale."
HSBC – A partner of choice for accessing LATAM
Kiraly, says: "We have extensive local markets expertise in LATAM and are able to offer a full suite of services to our clients; from execution through to custody & clearing, along-side meeting any financing requirements. Importantly, we are able to educate our clients on options available to access the market, bespoke execution requirements or trade settlement mechanics, and anticipation for future regulatory developments.
The bank's broad capabilities and extensive global presence – which includes Prime Finance operations spanning time zones across five continents – enables it to provide comprehensive support to international investors.
Demir continues: "HSBC's local presence and the way that our business is set up globally gives it easy access to emerging markets that are not as ‘emerging' as they used to be but that still have complications in terms of market access or the funding of positions."
Seamless execution, around-the-clock coverage, wide scope of access products tailored made to clients' needs, a good understanding of the very diverse local markets and regulatory landscape, have been at the centrepiece of HSBC Equity Finance Latam offering; and in turn, make HSBC the partner of choice for accessing LATAM.